Southern Africa Power Infrastructure: Hydropower And Solar Pipeline Set To Overshadow Coal

Southern Africa’s power project pipeline will be increasingly populated by renewable projects in the form of hydropower and solar, overtaking coal in terms of both project value and number, as governments turn to cleaner energy sources.

At present, the value in Southern Africa’s power project pipeline remains concentrated in coal-fired plants, but this is set to change following the completion of two major projects in South Africa.

This shift to renewables will be partly driven by climate change considerations and the need for development financing, which is more readily available for renewable power projects, as well as ongoing attempts to tackle significant power deficits.

There is a shift underway in Southern Africa’s power project pipeline as renewable sources, notably hydropower and solar, are set to overtake traditional coal-fired power projects. While coal will remain a major source of power generation in South Africa, Botswana and Zimbabwe, the project pipeline across the region will be increasingly dominated by renewable power plants. Already, renewable projects vastly outnumber coal projects in the pipeline, with the former representing 70% of the total number of projects compared to 21% of the total for the latter. Hydropower and solar projects are the most numerous, largely located in Mozambique, Zambia, Angola, Malawi, South Africa and Zimbabwe. Southern Africa already has a higher generation capacity than other regions of Sub-Saharan Africa (SSA), enabling a more significant shift to renewable power projects which are generally smaller in size but can supplement existing baseload power supplies.

Renewables Projects Outnumbering Coal

Southern Africa - Power Pipeline By Number Of Projects

Source: Fitch Solutions Key Projects Database

At present, coal plants dominate Southern Africa’s power project pipeline in terms of value. Coal remains an important, large-scale and cost effective form of power generation in the region, factors which are essential considerations for Southern African countries needing to provide low-cost electricity to large and expanding populations. On average, coal plants in the pipeline are the largest in terms of generation capacity, at 1,040MW compared to 493MW on average for hydropower, for example. Combined with the ready availability of feedstock from coal mines, this makes them an attractive option for Southern African countries, notably South Africa and Zimbabwe, which are seeking to boost access to cheap power.

Coal Offers Largest Capacity Increases

Southern Africa - Average Power Project Size (MW)

Source: Fitch Solutions Key Projects Database

The dominance of coal in the power project pipeline in terms of project value is largely due to two major projects under construction in South Africa, the USD15.2bn Kusile Coal-Fired Power Plant and the USD13.2bn Medupi Power Station. While a number of coal-fired power plants are still in the planning stages in Zimbabwe, the coal project pipeline will thin out considerably following the completion of these two projects, expected by 2022. This will reduce the value of the coal project pipeline from USD44.6bn to USD16.2bn. Meanwhile, the total value of renewable projects currently in the pre-construction stages stands at USD18.1bn.

Coal Dominance Set To Wane

Southern Africa - Power Pipeline By Project Value, USDmn

Source: Fitch Solutions Key Projects Database

The shift in the power project pipeline from coal to renewables is largely being driven by climate-related considerations. Southern African governments are bound by the Paris Climate Agreement to reduce their emissions, and shifting to more renewable sources of power generation will be key to this. Coal is a particularly large source of carbon emissions, driving a need to develop alternative sources of power generation. Local opposition to coal-fired power stations is also growing in South Africa, where there are strong concerns from civil society over pollution and health issues caused by coal plants as well as the wider impact of emissions on the global climate. South Africa also has an existing significant baseload power supply, meaning that it can rely on smaller renewables projects to add incremental expansions to generation capacity.

An important consideration for several markets in the region is the availability of development financing, which is essential for supporting private investment in power infrastructure by reducing financing and operating risks to international firms. The availability of development financing for power projects is increasingly contingent on meeting climate-related targets, with the World Bank allocating 31.2% of its financing for its fiscal year 2018 towards climate-related projects. Schemes such as the World Bank’s ‘Scaling Solar’ initiative are also gaining traction in encouraging private investment into renewable power projects in Southern Africa, with successful projects already completed in Zambia, supporting growth in the renewables project pipeline.

Solar Power Adding To Baseload Capacity In South Africa

Southern Africa - Solar Power Pipeline By Number Of Projects

Source: Fitch Solutions Key Projects Database

Reducing power deficits is a further important factor driving the renewable project pipeline, particularly for hydropower, in the less developed power markets in Southern Africa. Hydropower plants offer appeal for countries with low electrification rates and limited coal power development, such as Angola, Mozambique and Zambia. A single hydropower project can provide significant increases in power generation, which is not possible from other renewable energy sources. The average generation capacity of hydropower projects in the pipeline, though lower than coal, is above all the other types of power generation. There are currently seven hydropower projects in the pipeline in Southern Africa that will each add more than 1,000MW of generation capacity to the grid if completed, offering potential to transform power markets and considerably expand electrification rates in these countries.